The December 2 Profit Radar Report observed that: “Gold futures fell to a new low today. There are three different bullish RSI divergences. The odds of a bounce seem to increase with every tic lower.”

Gold prices raced higher the first half of 2016.

By July 6, 2016, gold traded as high as 1,377.6, up as much as 32.74%.

The July 7, 2016 Profit Radar Report stated that gold almost reached the minimum up side target (see chart below) and warned of a pullback.

The BIG QUESTION was whether the gold rally was over for good, or if gold would rally above 1,380 following its correction.

Below $1,000/oz Now?

In the second half of 2016, gold fell from 1,377 to 1,124 (on December 15).

We expected gold to find support around 1,200 (horizontal red bar), but it did not.

The December 18, 2016 Profit Radar Report featured the chart below and commented: “Gold is approaching longer-term support at 1,120 – 1,105. Based on seasonality, cycles and short-term sentiment, there is a very good chance gold will find support, and rally from, the 1,120 – 1,105 range.”

$1,400/oz or below $1,000/oz?

Gold bounced from 1,124.5 and rallied over $90 since.

The BIG QUESTION now is whether gold will complete its ‘unfinished business’ and move above 1,380, or relapse below 1,000.

Short-term, gold is in the red resistance zone (see first chart) and seems due for a digestive pullback. If such a pullback looks corrective, gold has a good shot of surpassing 1,380 in 2017 (this is our preferred scenario).

Trade above 1,380 would likely present a great opportunity to go short and lead to a drop below $1,000/oz.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

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Here is the elephant in the room: From a contrarian perspective, is investor sentiment bullish enough to cause a significant drop right now?

When viewed in isolation, the answer is: Yes. By some measures, today’s sentiment extremes rival extremes seen in late 2007 (December 31 Profit Radar Report includes a comparison between investor sentiment in 2007 and 2016).

The S&P 500 has yet to reach the up side target published by the August 5 Profit Radar Report (see chart below).

There are times where stocks continue to climb despite sentiment extremes. Now may be such a time.

Short-term Outlook

The December 14 PRR stated that: “Yesterday’s high could be the end of wave 3 (perhaps a wave 3 within a larger wave 3), to be followed by a choppy wave 4 correction with much sideways action (sideways action following strong moves has certainly been a pattern in 2016).”

After three weeks of choppy trading, the market did what it does best. It fooled the crowd by briefly dropping below the 20-day SMA and double trend line support at 2,245.

This drop triggered another set of buy signals for the S&P 500 SPDR ETF (SPY) and Nasdaq QQQ ETF (QQQ), and the January 2 PRR stated that: “The S&P 500 broke below support at 2,245. This may just be a fakeout move. The DJIA, Russell 2000 and Nasdaq are at support. We will allow stocks to regain their footing and move higher from around current levels.”

The strongest part of this rally is behind us, but further gains are still likely. Instead of straight up, future gains will probably take the shape of ‘two steps forward, one step back.’

Continuous updates with actual buy/sell recommendation are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter